If the Real Rate of Return Is 0 Percent and the Inflation

question 107

Multiple Choice

If the real rate of return is 0 percent and the inflation rate is 3 percent, the nominal interest rate is:

• A) 0 percent.
• B) 3 percent.
• C) −3 percent.
• D) 6 percent.

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Definitions:

Annual Dividend

The total dividend payment a company distributes to its shareholders annually.

Rate of Return

The appreciation or depreciation in value of an investment over an agreed period, conveyed as a percentage of the investment's starting value.

Dividend Increase

An action taken by a company's board of directors to raise the amount paid out to shareholders in dividends.

Required Return

The smallest anticipated return that an investor looks to obtain by putting money into a certain asset, factoring in the risk entailed.